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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For fiscal year ended December 31, 1997

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to ________.

Commission File Number 1-8864
USG CORPORATION
(Exact name of Registrant as Specified in its Charter)

Delaware 36-3329400
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

125 S. Franklin Street, Chicago, Illinois 60606-4678
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (312) 606-4000
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Securities Registered Pursuant to Section 12(b) of the Act:

Name of Exchange on
Title of Each Class Which Registered
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New York Stock Exchange
Common Stock, $0.10 par value Chicago Stock Exchange
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New York Stock Exchange
Preferred Share Purchase Rights Chicago Stock Exchange
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8.5% Senior Notes, Due 2005 New York Stock Exchange
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New York Stock Exchange
Warrants Chicago Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes |X| No |_|
As of January 31, 1998, the aggregate market value of USG Corporation
common stock held by nonaffiliates (based upon the New York Stock Exchange
("NYSE") closing prices) was approximately $2,455,716,000.
As of January 31, 1998, 47,048,720 shares of common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Corporation's 1997 Annual Report to Stockholders are
incorporated by reference in Parts I, II and IV of this Form 10-K Report.

2. The Corporation's definitive Proxy Statement for use in connection with
the Annual Meeting of Stockholders to be held on May 13, 1998 is
incorporated by reference in Part III of this Form 10-K Report.

3. A list of exhibits incorporated by reference is presented in this Form
10-K Report beginning on page 13.

TABLE OF CONTENTS

PART I Page
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Item 1. Business........................................................................................ 3
Item 2. Properties...................................................................................... 8
Item 3. Legal Proceedings............................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders............................................. 9

PART II
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Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters........................ 10
Item 6. Selected Financial Data......................................................................... 10
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition........... 10
Item 8. Financial Statements and Supplementary Data..................................................... 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 10

PART III
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Item 10. Directors and Executive Officers of the Registrant.............................................. 11
Item 11. Executive Compensation.......................................................................... 12
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................. 12
Item 13. Certain Relationships and Related Transactions.................................................. 12

PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 13

Signatures.................................................................................................... 20

PART I

Item 1. BUSINESS

(a) General Development of Business

United States Gypsum Company ("U.S. Gypsum") was incorporated in 1901. USG
Corporation (together with its subsidiaries, called "USG" or the "Corporation")
was incorporated in Delaware on October 22, 1984. By a vote of stockholders on
December 19, 1984, U.S. Gypsum became a wholly owned subsidiary of the
Corporation and the stockholders of U.S. Gypsum became the stockholders of the
Corporation, all effective January 1, 1985.

In 1988, the Corporation incurred approximately $2.5 billion in debt
primarily to finance a plan of recapitalization in response to an unsolicited
takeover attempt. As a result of high leverage and a severe cyclical downturn in
its constructionbased markets, the Corporation initiated a comprehensive
restructuring of its debt (the "Restructuring") in 1990 that was completed on
May 6, 1993, through implementation of a "prepackaged" plan of reorganization
under United States bankruptcy law. In accordance with the prepackaged plan,
$1.4 billion of debt and accrued interest was converted into equity and interest
expense was significantly reduced. The Corporation accounted for the
Restructuring using the principles of fresh start accounting as required by
AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7"). Pursuant to such
principles, individual assets and liabilities were adjusted to fair market
values as of May 6, 1993. Excess reorganization value, the portion of the
reorganization value not attributable to specific assets, amounted to $851
million and was scheduled to be amortized over five years. Due to the
Restructuring and implementation of fresh start accounting, financial statements
subsequent to May 6, 1993, are not comparable to financial statements through
that date.

Following the Restructuring, the Corporation was engaged in a financial
strategy of reducing debt and growing its gypsum, ceilings and distribution
businesses through a balanced application of free cash flow between debt
reduction and capital expenditures. This strategy had the dual objective of
reaching a target debt level of $650 million within five years and achieving
investment grade status with respect to its senior public debt issues for the
first time since 1988. These objectives were largely realized in 1997. As a
result of refinancings implemented in 1994 and 1995, combined with various debt
repayments since 1993, the Corporation reduced its total debt to $620 million as
of December 31, 1997, from $1,556 million as of May 6, 1993. In the fourth
quarter of 1997, Standard & Poor's raised its rating of USG's debt to investment
grade BBB. As of December 31, 1997, Moody's rating of USG debt was Ba1, one
level below investment grade. In addition to these achievements, the remaining
$83 million balance of excess reorganization value was eliminated as of
September 30, 1997. This balance, which would have been amortized through April
1998, was offset by the elimination of a valuation allowance in accordance with
SOP 90-7.

USG's financial strategy going forward will be to increase the proportion
of free cash flow it spends on capital projects, while reviewing possible
applications of its cash for other corporate purposes.

(b) Financial Information About Industry Segments

Financial information pertaining to industry segments included in "Notes to
Financial Statements - Note 15. Industry and Geographic Segments" of the
Corporation's 1997 Annual Report to Stockholders is incorporated herein by
reference.

Through its subsidiaries, USG is a leading manufacturer and distributor of
building materials producing a wide range of products for use in new
residential, new nonresidential and repair and remodel construction, as well as
products used in certain industrial processes. USG's operations are organized
into two core businesses: North American Gypsum and Worldwide Ceilings.

North American Gypsum

Business

North American Gypsum, which manufactures and markets gypsum and related
products in the United States, Canada and Mexico, includes U.S. Gypsum and L&W
Supply Corporation ("L&W Supply") in the United States, the gypsum business of
CGC Inc. ("CGC") in Canada and Yeso Panamericano S.A. de C.V. in Mexico. U.S.
Gypsum is the largest producer of gypsum wallboard in the United States and
accounted for nearly one-third of total domestic gypsum wallboard sales in 1997.
L&W Supply is the country's largest distributor of wallboard and related
products and in 1997 distributed approximately 10% of all gypsum wallboard in
the United States (including approximately 27% of U.S. Gypsum's wallboard
production).

Products

North American Gypsum manufactures and markets building and industrial
products used in a variety of applications. Gypsum panel products are used to
finish the interior walls and ceilings in residential, commercial and
institutional construction. These products provide aesthetic as well as
sound-dampening and fire-retarding value. The majority of these products are
sold under the SHEETROCK brand name. Also sold under the SHEETROCK brand name is
a line of joint compounds used for finishing wallboard joints. The DUROCK line
of cement board and accessories provides fire-resistant and water-damage
resistant assemblies for both interior and exterior construction. The
Corporation also produces a variety of plaster products used to provide a custom
finish for residential and commercial interiors. Like SHEETROCK brand wallboard,
these products provide aesthetic, sound-dampening and fire-retarding value.
Plaster products are sold under the trade names of RED TOP, IMPERIAL and
DIAMOND. The Corporation also produces gypsum-based products for agricultural
and industrial customers to use in a number of applications, including soil
conditioning, road repair, fireproofing and ceramics.

Manufacturing

North American Gypsum's products are manufactured at 44 plants located
throughout the United States, eastern Canada and in central Mexico. In June
1997, ground was broken for the $110 million SHEETROCK wallboard plant in
Bridgeport, Ala., that was first announced in 1996. This facility is scheduled
to begin operation in mid-1999. Construction is also underway to build a $90
million facility to manufacture gypsum wood fiber ("GWF") panels at the Gypsum,
Ohio, plant. This facility will produce high-performance construction panels
from synthetic gypsum, recycled paper and wood fiber using USG's patented GWF
technology. Production is scheduled to begin by the end of 1999. In the fourth
quarter of 1997, the Corporation purchased through CGC a gypsum fiber panel
plant in Port Hawkesbury, Nova Scotia, from Louisiana-Pacific Corporation. This
acquisition complements the GWF business plan. Gypsum wood fiber products
manufactured at both plants will be marketed under the FIBEROCK brand name. The
Corporation also announced in 1997 that it will invest $90 million to rebuild
and modernize its East Chicago, Ind., plant. The existing SHEETROCK wallboard
manufacturing line at the East Chicago plant will be replaced with a new,
state-of-the-art wallboard manufacturing line and warehouse to serve the
Midwest/Great Lakes region. This new wallboard manufacturing line will have an
annual capacity of 550 million square feet, replacing the old production line
that has approximately 200 million square feet of capacity. The new East Chicago
line is expected to begin production by the end of 1999.

Gypsum rock is mined or quarried at 14 company-owned locations in the
United States and Canada. In 1997, these facilities provided approximately 89%
of the gypsum used by the Corporation's plants in North America. Certain plants
purchase synthetic gypsum or natural gypsum rock from various outside sources
which accounted for approximately 11% of the gypsum used in the Corporation's
North American plants. The Corporation's geologists estimate that recoverable
rock reserves are sufficient for more than 30 years of operation based on the
Corporation's average annual production of crude gypsum during the past five
years. Proven reserves contain approximately 209 million tons, of which
approximately 66% are located in the United States and 34% in Canada. Additional
reserves of approximately 153 million tons are found on three properties not in
operation. The Corporation's total average annual production of crude gypsum in
the United States and Canada during the past five years was 9.9 million tons.

The Corporation owns and operates seven paper mills located across the
United States. Vertical integration in paper ensures a continuous supply of
high-quality paper that is tailored to the specific needs of USG's wallboard
production processes.

The Corporation does research and development at the USG Research and
Technology Center in Libertyville, Ill. The staff at this center provides
specialized technical services to the operating units and do product and process
research and development. The center is especially well-equipped for carrying
out fire, acoustical, structural and environmental evaluations of products and
building assemblies. The center also has an analytical laboratory for chemical
analysis and characterization of materials. Development activities can be taken
to the pilot plant level before being transferred to a full-size plant.

Marketing and Distribution

Distribution is carried out through L&W Supply, building materials dealers,
home improvement centers and other retailers, contractors and specialty
wallboard distributors. Sales of gypsum products are seasonal to the extent that
sales are generally greater from spring through the middle of autumn than during
the remaining part of the year. Based on the Corporation's estimates using
publicly available data, internal surveys, and gypsum wallboard shipment data
from the Gypsum Association, management estimates that during 1997, about 44% of
total industry volume demand for gypsum wallboard was generated by new
residential construction activity, 39% of volume demand was generated by
residential and nonresidential repair and remodel activity, 10% of volume demand
was generated by new nonresidential construction activity and the remaining 7%
of volume demand was generated by other activities such as exports and temporary
construction.

L&W Supply, which was organized in 1971 by U.S. Gypsum, currently has 176
distribution locations in 34 states. It is a service-oriented organization that
stocks a wide range of construction materials and delivers less than truckload
quantities of construction materials to a job site and places them in areas
where work is being done, thereby reducing or eliminating the need for handling
by contractors. Although L&W Supply specializes in distribution of gypsum
wallboard (which accounts for approximately 50% of its total net sales), joint
compound and other products manufactured primarily by U.S. Gypsum, it also
distributes products manufactured by USG Interiors such as acoustical ceiling
tile and grid, as well as products of other manufacturers including drywall
metal, insulation, roofing products and accessories. L&W Supply leases
approximately 86% of its facilities from third parties. Usually, initial leases
run from three to five years with a five-year renewal option.

Competition

The Corporation competes in North America as the largest of 14 producers of
gypsum wallboard products and in 1997 accounted for nearly one-third of total
gypsum wallboard sales in the United States. In 1997, U.S. Gypsum shipped 8.4
billion square feet of wallboard, the highest level in the Corporation's
history, out of total U.S. industry shipments (including imports) estimated at
26.5 billion square feet, also a record. Principal competitors in the United
States are: National Gypsum Company, Georgia-Pacific Corporation, James Hardie
Gypsum, The Celotex Corporation, Temple-Inland Forest Products Corporation,
American Gypsum and several smaller, regional competitors. Major competitors in
Canada include BPB Westroc and Georgia-Pacific Corporation. In Mexico, the
Corporation's major competitor is Panel Rey.

L&W Supply's largest competitor, Gypsum Management Supply, is an
independent distributor with locations in the southern, central and western
United States. There are several regional competitors, such as, GDMA/RINKER in
the southeast (primarily in Florida) and Strober Building Supply in the
northeastern United States. L&W Supply's many local competitors include lumber
dealers, hardware stores, home improvement centers and acoustical tile
distributors.

Worldwide Ceilings

Business

Worldwide Ceilings, which manufactures and markets interior systems
products worldwide, includes USG Interiors, Inc., the international interior
systems business managed as USG International ("USG International") and the
ceilings business of CGC. Worldwide Ceilings is a leading supplier of interior
ceiling products used primarily in commercial applications. In 1997, Worldwide
Ceilings was estimated to be the largest producer of ceiling grid and the second
largest producer of ceiling tile in the world.

Products

Worldwide Ceilings manufactures and markets ceiling grid, ceiling tile, and
wall systems and, in Europe and Asia Pacific, access floor systems. USG's
integrated line of ceiling products provides qualities such as sound absorption,
fire retardation, and convenient access to the space above the ceiling for
electrical and mechanical systems, air distribution and maintenance. USG
Interiors' significant trade names include the AURATONE and ACOUSTONE brands of
ceiling tile and the DX, FINELINE, CENTRICITEE, CURVATURA and DONN brands of
ceiling grid.

Manufacturing

Worldwide Ceilings' products are manufactured at 20 plants located in North
America, Europe and Asia Pacific. These include 10 ceiling grid plants, 5
ceiling tile plants, 2 plants that produce other interior products and 3 plants
that produce or prepare raw materials for ceiling tile and grid. Principal raw
materials used in the production of Worldwide Ceilings' products include mineral
fiber, steel, perlite, starch and high-pressure laminates. Certain of these raw
materials are produced internally, while others are obtained from various
outside suppliers. Shortages of raw materials used in this segment are not
expected. In early 1997, construction began on a $35 million project that
includes the replacement of two old production lines with one modern, high-speed
line at its ceiling tile plant in Cloquet, Minn. This project, which is
anticipated to be completed by mid-1998, will reduce manufacturing costs and add
capacity to meet increasing worldwide demand. In 1997, the Corporation acquired
a 60% interest in a joint-venture company operating a ceiling grid manufacturing
facility in Shenzhen, China.

USG Interiors maintains its own research and development facility in Avon,
Ohio, which provides product design, engineering and testing services in
addition to manufacturing development, primarily in metal forming, with tool and
machine design and construction services. Additional research and development is
carried out at the Corporation's research and development center in
Libertyville, Ill., and at its "Solutions Center"SM in Chicago, Ill.

Marketing and Distribution

Worldwide Ceilings' products are sold primarily in markets related to the
new construction and renovation of commercial buildings as well as the retail
market for small commercial contractors. Marketing and distribution to large
commercial users is conducted through a network of distributors and installation
contractors as well as through L&W Supply.

Competition

The Corporation estimates that it is the second largest producer/marketer
of acoustical ceiling tile in the world. Principal global competitors include
Armstrong World Industries, Inc. (the largest manufacturer), OWA
Faserplattenwerk GmbH (Odenwald) and The Celotex Corporation. The Corporation
estimates that it is the world's largest manufacturer of ceiling grid. Principal
competitors in ceiling grid include WAVE (a joint venture between Armstrong
World Industries, Inc. and Worthington Industries) and Chicago Metallic
Corporation.

Other Information

The Corporation's plants are substantial users of energy. Five major fuel
types are used in a mix consisting of 79% natural gas, 10% electricity, 7% oil,
2% coke and 2% purchased hot air. With few exceptions, plants that use natural
gas are equipped with fuel stand-by systems, principally oil. Primary fuel
supplies have been adequate and no curtailment of plant operations has resulted
from insufficient supplies. Supplies are likely to remain sufficient for
projected requirements. Energy price swap agreements are used by the Corporation
to hedge the cost of certain purchased fuel.

Neither industry segment has any special working capital requirements or is
materially dependent on a single customer or a few customers on a regular basis.
No single customer of the Corporation accounted for more than 10% of the
Corporation's 1997 or 1996 consolidated net sales. Because orders are filled
upon receipt, neither industry segment has any significant backlog.

Loss of one or more of the patents or licenses held by the Corporation
would not have a major impact on the Corporation's business or its ability to
continue operations. No material part of any of the Corporation's business is
subject to renegotiation of profits or termination of contracts or subcontracts
at the election of the government.

All of the Corporation's products regularly require improvement to remain
competitive. The Corporation also develops and produces comprehensive systems
employing several of its products. In order to maintain its high standards and
remain a leader in the building materials industry, the Corporation performs
on-going extensive research and development activities and makes the necessary
capital expenditures to maintain production facilities in good operating
condition.

One of the Corporation's subsidiaries, U.S. Gypsum, is a defendant in
asbestos lawsuits alleging both property damage and personal injury. Information
pertaining to legal proceedings included in "Notes to Financial Statements -
Note 16. Litigation" of the Corporation's 1997 Annual Report to Stockholders is
incorporated herein by reference.

(d) Financial Information About Foreign and Domestic Operations and Export
Sales

Financial information pertaining to foreign and domestic operations and
export sales included in "Notes to Financial Statements - Note 15. Industry and
Geographic Segments" of the Corporation's 1997 Annual Report to Stockholders is
incorporated herein by reference.

Item 2. PROPERTIES

The Corporation's plants, mines, quarries, transport ships and other
facilities are located in North America, Europe, and Asia Pacific. Many of these
facilities are operating at or near full capacity. All facilities and equipment
are in good operating condition, and in management's judgment, sufficient
expenditures have been made annually to maintain them. The locations of the
production properties of the Corporation's subsidiaries, grouped by industry
segment, are as follows (plants are owned unless otherwise indicated):

North American Gypsum

Gypsum Wallboard and Other Gypsum Products

United States Canada
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Baltimore, Md. Norfolk, Va. Hagersville, Ontario
Boston (Charlestown), Mass. Oakfield, N.Y. Montreal, Quebec
Detroit (River Rouge), Mich. Plaster City, Calif. St. Jerome, Quebec (currently idle)
East Chicago, Ind. Plasterco (Saltville), Va.
Empire, Nev. Santa Fe Springs, Calif.
Fort Dodge, Iowa Shoals, Ind.
Fremont, Calif. Sigurd, Utah
Galena Park, Texas Southard, Okla.
Gypsum, Ohio Sperry, Iowa
Jacksonville, Fla. Stony Point, N.Y.
New Orleans, La. Sweetwater, Texas

Mexico
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Puebla, Puebla

Joint Compound

Surface preparation and joint treatment products are produced in plants
located at Chamblee, Ga.; Dallas, Texas; East Chicago, Ind.; Fort Dodge, Iowa;
Galena Park, Texas; Gypsum, Ohio; Jacksonville, Fla.; Port Reading, N.J.;
Sigurd, Utah; Tacoma, Wash. (leased); Torrance, Calif.; Hagersville, Ontario,
Canada; Montreal, Quebec, Canada; Puebla, Mexico; and Port Klang, Malaysia
(leased).

Gypsum Rock

Gypsum rock is mined or quarried at Alabaster (Tawas City), Mich.; Empire,
Nev.; Fort Dodge, Iowa; Oakfield, N.Y.; Plaster City, Calif.; Plasterco
(Saltville), Va.; Shoals, Ind.; Sigurd, Utah; Southard, Okla.; Sperry, Iowa;
Sweetwater, Texas; Hagersville, Ontario, Canada; Little Narrows, Nova Scotia,
Canada; and Windsor, Nova Scotia, Canada. Synthetic gypsum is processed at
Belledune, New Brunswick, Canada.

Mining operations at Oakfield, N.Y., are scheduled to be shut down by mid-1998.

Paper

Paper for gypsum wallboard is manufactured at Clark, N.J.; Galena Park,
Texas; Gypsum, Ohio; Jacksonville, Fla.; North Kansas City, Mo.; Oakfield, N.Y.;
and South Gate, Calif.

Ocean Vessels

Gypsum Transportation Limited, a wholly owned subsidiary of the
Corporation, headquartered in Bermuda, owns and operates a fleet of three
self-unloading ocean vessels. Under contract of affreightment, these vessels
transport gypsum rock from Nova Scotia to the East Coast plants of U.S. Gypsum.
Excess ship time, when available, is offered for charter on the open market.

Other Products

A mica-processing plant is located at Spruce Pine, N.C.; perlite ore is
produced at Grants, N.M.; and drywall metal products are manufactured at Medina,
Ohio (leased). Metal lath, plaster and drywall accessories and light gauge steel
framing products are manufactured at Puebla, Mexico. Various other products are
manufactured at La Mirada, Calif. (adhesives and finishes); New Orleans, La.
(lime products); and Port Hawkesbury, Nova Scotia, Canada (gypsum fiber panel
products).

Worldwide Ceilings

Ceiling Tile

Acoustical ceiling tile and panels are manufactured at: Cloquet, Minn.;
Greenville, Miss.; Walworth, Wis.; San Juan Ixhuatepec, Mexico; and Aubange,
Belgium.

Ceiling Grid

Ceiling grid products are manufactured at: Cartersville, Ga.; Stockton,
Calif.; Westlake, Ohio; Auckland, New Zealand (leased); Dreux, France; Oakville,
Ontario, Canada; Peterlee, England (leased); Port Klang, Malaysia (leased);
Viersen, Germany; and Taipei, Taiwan (leased). A coil coater and slitter plant
used in the production of ceiling grid is also located in Westlake, Ohio and a
slitter plant is located in Stockton, Calif. (leased).

Other Products

Access floor systems products are manufactured at: Peterlee, England
(leased); and Port Klang, Malaysia (leased). Mineral fiber products are
manufactured at Red Wing, Minn. and Walworth, Wis. Wall system products are
manufactured at Medina, Ohio (leased). Drywall metal products are manufactured
at Prestice, Czech Republic (leased) and Oakville, Ontario, Canada.

Item 3. LEGAL PROCEEDINGS

Information pertaining to legal proceedings included in "Notes to Financial
Statements - Note 16. Litigation" of the Corporation's 1997 Annual Report to
Stockholders is incorporated herein by reference.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None during the fourth quarter of 1997.

PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

Information with respect to the principal market on which the Corporation's
common stock is traded, the range of high and low market prices and number of
stockholders of record included in "Selected Quarterly Financial Data" of the
Corporation's 1997 Annual Report to Stockholders is incorporated herein by
reference.

There have been no dividends declared since the third quarter of 1988. Bank
credit agreements and other debt instruments have previously prohibited or
restricted the payment of cash dividends. Although currently permitted within
certain limits under the Corporation's existing debt agreements, the Corporation
is not paying a dividend at this time.

On November 22, 1996, the Corporation entered into a retention agreement
with an employee, formerly the principal stockholder of a corporation certain of
whose assets were purchased by the Corporation, whereby the Corporation agreed
to grant shares of unregistered common stock, $0.10 par value, having an
aggregate value equal to $250,000 in five separate annual installments each
having a value equal to $50,000, in reliance on the private offering exemption
afforded by Section 4 (2) of the Securities Act of 1933, as amended. The second
annual grant in the amount of 1,062 shares was made on November 24, 1997. The
unregistered common stock is restricted from transfer, resale or other
disposition until November 22, 2001.

Item 6. SELECTED FINANCIAL DATA

Selected financial data included in "Comparative Five-Year Summary" of the
Corporation's 1997 Annual Report to Stockholders is incorporated herein by
reference.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

"Management's Discussion and Analysis of Results of Operations and
Financial Condition" of the Corporation's 1997 Annual Report to Stockholders is
incorporated herein by reference.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements and supplementary data included in "Consolidated
Statement of Earnings," "Consolidated Balance Sheet," "Consolidated Statement of
Cash Flows," "Notes to Financial Statements" and "Report of Independent Public
Accountants" of the Corporation's 1997 Annual Report to Stockholders is
incorporated herein by reference.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information about directors has been omitted from this report as it will be
filed with the Securities and Exchange Commission (the "SEC") in a definitive
proxy statement pursuant to Regulation 14A, which definitive proxy statement is
incorporated herein by reference.

Executive Officers of the Registrant (as of February 1, 1998)

Has Held
Name, Age Present
and Present Position Prior Business Experience in Past Five Years Position Since

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William C. Foote, 46 President and Chief Executive Officer, L&W Supply Corporation June 1997
Chairman and Chief Executive from September 1991 to January 1994; President and Chief
Officer Executive Officer, USG Interiors, Inc. from January 1993 to
January 1994; President and Chief Operating Officer
from January 1994 to January 1996; President
and Chief Executive Officer to April 1996;
Chairman, President and Chief Executive
Officer from April 1996 to June 1997.

P. Jack O'Bryan, 62 President and Chief Executive Officer, United States Gypsum June 1997
President and Chief Operating Company to January 1993; Senior Vice President and Chief
Officer; President and Chief Technology Officer, USG Corporation to August 1994; Senior Vice
Executive Officer, United President - Worldwide Manufacturing and Technology to October
States Gypsum Company; President 1995; Executive Vice President- Worldwide Ceilings to September
and Chief Executive Officer, 1996; President and Chief Executive Officer, USG Interiors, Inc.
USG Interiors, Inc. since October 1995; Executive Vice President - Operations to June
1997.

Richard H. Fleming, 50 Vice President and Treasurer to January 1994; Vice President January 1995
Senior Vice President and Chief and Chief Financial Officer to January 1995.
Financial Officer

Arthur G. Leisten, 56 Senior Vice President and General Counsel to March 1993; Senior February 1994
Senior Vice President and General Vice President, General Counsel and Secretary to February 1994.
Counsel

Harold E. Pendexter, Jr., 63 Same position. January 1991
Senior Vice President and Chief
Administrative Officer

Raymond T. Belz, 57 Vice President Financial Services and Financial
Vice President and Controller; Administration, United States Gypsum Company to January 1994; September 1996
Vice President Financial Vice President and Controller, USG Corporation, Vice
Operations, North American Gypsum President Financial Services, United States Gypsum Company to
and Worldwide Ceilings January 1995; Vice President and Chief Financial Officer, North
American Gypsum from January 1995 to September 1996; Vice President
and Controller since January 1995.

Brian W. Burrows, 58 Same position. March 1987
Vice President, Research and
Technology

John E. Malone, 54 Vice President and Controller, USG Corporation to January 1994; January 1994
Vice President and Treasurer Vice President - Finance, USG International, from March 1993 to
February 1995.

Daniel J. Nootens, 59 Vice President Manufacturing, United States Gypsum Company from June 1997
Vice President; Executive November 1990 to July 1994; Executive Vice President & Chief
Vice President, Strategic Operating Officer, United States Gypsum Company from July 1994
Manufacturing & Capital to September 1996; Executive Vice President-Operations, North
Investments, North American American Gypsum from September 1996 tp June 1997.
Gypsum and Worldwide Ceilings

Robert B. Sirgant, 57 Vice President, National Accounts and Marketing - East, United January 1995
Vice President, Corporate States Gypsum Company to July 1994; Vice President, National
Accounts Accounts, United States Company to January 1995.

Dean H. Goossen, 50 Vice President, General Counsel and Secretary, Xerox Financial
Corporate Secretary Services Life Insurance Company to February 1993; Assistant February 1994
Secretary, USG Corporation to February 1994.

Item 11. EXECUTIVE COMPENSATION

Information required by Item 11 has been omitted from this report as it will
be filed with the SEC in a definitive proxy statement pursuant to Regulation
14A, which definitive proxy statement is incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by Item 12 has been omitted from this report as it
will be filed with the SEC in a definitive proxy statement pursuant to
Regulation 14A, which definitive proxy statement is incorporated herein by
reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by Item 13 has been omitted from this report as it
will be filed with the SEC in a definitive proxy statement pursuant to
Regulation 14A, which definitive proxy statement is incorporated herein by
reference.

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this 10-K Report:

1. The consolidated financial statements, notes to financial statements
and report of independent public accountants included in the
Corporation's 1997 Annual Report to Stockholders and listed below are
incorporated herein by reference:

Consolidated Statement of Earnings - Years ended December 31, 1997,
1996 and 1995.

Consolidated Balance Sheet - As of December 31, 1997 and 1996.

Consolidated Statement of Cash Flows - Years ended December 31, 1997,
1996 and 1995.

Notes to Financial Statements.

Report of Independent Public Accountants.

2. Supplemental Financial Statement Schedules:

Schedule II - Valuation and Qualifying Accounts.

Report of Independent Public Accountants With Respect to
Financial Statement Schedule.

All other schedules have been omitted because they are not required,
are not applicable, or the information is included in the financial
statements or notes thereto.

3 Exhibits (Reg. S-K, Item 601):

Exhibit
No. Page
------- ----

3 Articles of incorporation and by-laws:

(a) Restated Certificate of Incorporation of USG Corporation (incorporated
by reference to Exhibit 3.1 of USG Corporation's Form 8-K, dated May 7, 1993).

(b) Amended and Restated By-Laws of USG Corporation, dated as of May 12,
1993 (incorporated by reference to Exhibit 3(b) of Amendment No. 1 to USG
Corporation's Registration Statement No. 33-61162 on Form S-1, dated June 16,
1993).

4 Instruments defining the rights of security holders, including
indentures:

(a) Indenture dated as of October 1, 1986 between USG Corporation and
Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit
4(a) of USG Corporation's Registration Statement No. 33-9294 on Form S-3, dated
October 7, 1986).

(b) Resolutions dated March 5, 1987 of a Special Committee created by the
Board of Directors of USG Corporation relating to USG Corporation's 8.75%
Debentures due 2017 (incorporated by reference to Exhibit 4(c) of USG
Corporation's 1993 Annual Report on Form 10-K, dated March 14, 1994).

(c) Resolutions dated February 1, 1994 of a Special Committee created by
the Board of Directors of USG Corporation relating to USG Corporation's 9.25%
Senior Notes due 2001 (incorporated by reference to Exhibit 4(f) of USG
Corporation's Registration No. 33- 51845 on Form S-1, dated February 16, 1994).

(d) Resolutions dated August 3, 1995 of a Special Committee created by the
Board of Directors of USG Corporation relating to USG Corporation's 8.5% Senior
Notes due 2005 (incorporated by reference to Exhibit 4(b) of Amendment No. 3 to
USG Corporation's Registration Statement No. 33-60563 on Form S-3, dated July
28, 1995).

(e) Warrant Agreement dated May 6, 1993 between USG Corporation and Harris
Trust and Savings Bank, as Warrant Agent, relating to USG Corporation's Warrants
(incorporated by reference to Exhibit 4.3 of USG Corporation's Form 8-K, dated
May 7, 1993).

(f) Form of Warrant Certificate (incorporated by reference to Exhibit 4(g)
of Amendment No. 4 to USG Corporation's Registration Statement No. 33-40136 on
Form S-4, dated November 12, 1992).

(g) Rights Agreement dated May 6, 1993 between USG Corporation and Harris
Trust and Savings Bank, as Rights Agent (incorporated by reference to Exhibit
10.1 of USG Corporation's Form 8-K, dated May 7, 1993).

(h) Form of Common Stock certificate (incorporated by reference to Exhibit
4.4 to USG Corporation's Form 8-K, dated May 7, 1993).

The Corporation and certain of its consolidated subsidiaries are parties to
long-term debt instruments under which the total amount of securities authorized
does not exceed 10% of the total assets of the Corporation and its subsidiaries
on a consolidated basis. Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of
Regulation S-K, the Corporation agrees to furnish a copy of such instruments to
the Securities and Exchange Commission upon request.

10 Material contracts:

(a) Management Performance Plan of USG Corporation (incorporated by
reference to Annex C of Amendment No. 8 to USG Corporation's Registration
Statement No. 33-40136 on Form S-4, dated February 3, 1993).

(b) First Amendment to Management Performance Plan, effective November 15,
1993 and dated February 1, 1994 (incorporated by reference to Exhibit 10(aq) of
Amendment No. 1 of USG Corporation's Registration Statement No. 33-51845 on Form
S-1).

(c) Amendment and Restatement of USG Corporation Supplemental Retirement
Plan, effective as of July 1, 1997 and dated August 25, 1997. 21

(d) Termination Compensation Agreements (incorporated by reference to
Exhibit 10(h) of USG Corporation's 1991 Annual Report on Form 10-K, dated March
5, 1992).

(e) Indemnification Agreements (incorporated by reference to Exhibit 10(g)
of Amendment No. 1 to USG Corporation's Registration No. 33-51845 on Form S-1).

(f) Bankruptcy Court Order issued April 23, 1993 confirming USG
Corporation's Prepackaged Plan of Reorganization (incorporated by reference to
Exhibit 28.1 of Form 8-K filed by USG Corporation on May 7, 1993).

(g) Consulting Agreement dated August 11, 1993 between USG Corporation and
James W. Cozad (incorporated by reference to Exhibit 10(aw) in USG Corporation's
Registration Statement 33- 51845, on Form S-1).

(h) Form of Employment Agreement dated May 12, 1993 (incorporated by
reference to Exhibit 10(h) of Amendment No. 1 to USG Corporation's Registration
Statement No. 33-61152 on Form S-1).

(i) Amendment of Termination Compensation Agreements (incorporated by
reference to Exhibit 10(j) of Amendment No. 1 to USG Corporation's Registration
Statement No. 33-61152 on Form (S-1).

(j) Credit Agreement dated as of July 27, 1995 among USG Corporation and
the Banks listed on the signature page thereto and Chase Manhattan Bank
(formerly Chemical Bank) as Agent (incorporated by reference to Exhibit 99(a) of
Amendment No. 3 to USG Corporation's Registration Statement No. 33-60563 on Form
S-3, dated July 28, 1995).

(k) Amendment No. 1, dated as of February 1, 1996 to the Credit Agreement
(incorporated by reference to Exhibit 10(q) of USG Corporation's 1995 Annual
Report on Form 10-K, dated February 29, 1996).

(l) Amendment No. 2, dated as of May 14, 1997, to the Credit Agreement. 38

(m) 1995 Long-Term Equity Plan of USG Corporation (incorporated by
reference to Annex A to USG Corporation's Proxy Statement and Proxy dated March
31, 1995).

(n) 1997 Annual Management Incentive Program - USG Corporation. 47

(o) Omnibus Management Incentive Plan (incorporated by reference to Annex A
to USG Corporation's Proxy Statement and Proxy dated March 28, 1997).

(p) First Amendment to Omnibus Management Incentive Plan, dated as of
November 11, 1997. 55

(q) Amended and Restated Stock Compensation Program for Non-Employee
Directors of USG Corporation, dated July 1, 1997. 56

13 Portions of USG Corporation's 1997 Annual Report to Stockholders. (Such
report is not deemed to be filed with the Commission as part of this Annual
Report on Form 10-K, except for the portions thereof expressly incorporated by
reference.) 64

21 Subsidiaries 90

23 Consents of Experts and Counsel 91

24 Power of Attorney 92

27 Financial Data Schedule 93

(b) Reports on Form 8-K:

No reports on Form 8-K were filed during the fourth quarter of 1997.

Index to exhibits filed
with the Annual Report on Form 10-K
for the year ended December 31, 1997

Exhibit Page

10(c) Amendment and Restatement of USG Corporation Supplemental Retirement Plan 21

10(l) Amendment No. 2 to the Credit Agreement 38

10(n) 1997 Annual Management Incentive Program - USG Corporation 47

10(p) First Amendment to Omnibus Management Incentive Plan 55

10(q) Amended and Restated Stock Compensation Program for Non-Employee Directors 56

13 Portions of USG Corporation's 1997 Annual Report to Stockholders 64

21 Subsidiaries 90

23 Consent of Experts 91

24 Power of Attorney 92

27 Financial Data Schedule 93

If you wish to receive a copy of any exhibit, it may be obtained, upon payment
of reasonable expenses, by writing to:

Dean H. Goossen, Corporate Secretary
USG Corporation
Department #188
P.O. Box 6721
Chicago, IL 60680-6721

USG CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)

Provision Receivables
Charged to Written Off
Beginning Costs and and Discounts Ending
Balance Expenses Allowed Balance
------- -------- ------- -------

Year ended December 31, 1997:

Doubtful accounts................................. $ 14 $ 5 $ (5) $ 14
Cash discounts.................................... 3 52 (52) 3

Year ended December 31, 1996:

Doubtful accounts................................. 11 7 (4) 14
Cash discounts.................................... 3 46 (46) 3

Year ended December 31, 1995:

Doubtful accounts................................. 11 6 (6) 11
Cash discounts.................................... 3 44 (44) 3

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
WITH RESPECT TO FINANCIAL STATEMENT SCHEDULE

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in USG Corporation's annual
report to stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 22, 1998. Our audit was made for the
purpose of forming an opinion on the consolidated financial statements taken as
a whole. The financial statement schedule on page 18 is the responsibility of
the Corporation's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the consolidated
financial statements. The financial statement schedule has been subjected to the
auditing procedures applied in the audit of the consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the consolidated
financial statements taken as a whole.

/s/Arthur Andersen LLP
----------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 22, 1998

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

USG CORPORATION
February 20, 1998

By: /s/ Richard H. Fleming
---------------------------
Richard H. Fleming
Senior Vice President and
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

/s/ William C. Foote February 20, 1998
- --------------------------
WILLIAM C. FOOTE
Chairman and Chief Executive Officer
(Principal Executive Officer)

/s/ Richard H. Fleming February 20, 1998
- ---------------------------
RICHARD H. FLEMING
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)

/s/ Raymond T. Belz February 20, 1998
- ---------------------------
RAYMOND T. BELZ
Vice President and Controller
(Principal Accounting Officer)

ROBERT L. BARNETT, KEITH A. BROWN, ) By:/s/ Richard H. Fleming
W. H. CLARK, W. DOUGLAS FORD, ) Richard H. Fleming
JAMES C. COTTING, LAWRENCE ) Attorney-in-fact
M. CRUTCHER, DAVID W. FOX, ) Pursuant to Power of Attorney
PHILIP C. JACKSON, JR., MARVIN E. LESSER, ) (Exhibit 24 hereto)
P. JACK O'BRYAN, JOHN B. SCHWEMM, ) February 20, 1998
JUDITH A. SPRIESER, Directors )